Loan Charge Review Announced

Following representations by many MPs including myself on behalf of constituents, the government has announced a further review of the loan charge.

I am reproducing today the letter I have been sent with all the details. As you will see the Treasury say the approach they have adopted towards the loan charge still stays in place, but there are arrangements concerning the Review and concerning payment of tax owing which constituents affected by this charge may like to use.

Dear John

DISGUISED REMUNERATION LOAN CHARGE REVIEW

I am writing to give you an immediate update on the Loan Charge review announced today.

As you will know, the Loan Charge was announced at Budget 2016 and passed into law in Finance Act (No. 2) 2017. It is designed to tackle contrived tax avoidance schemes where a person’s income is received as a loan and not repaid.

The Government is clear that such schemes do not work, that wages paid in this way have always been taxable, and that the underlying tax avoidance behaviour is unfair to the 99.8 per cent of taxpayers who did not use these schemes. The Loan Charge was introduced following 20 years of action by HM Revenue & Customs (HMRC) and the Government against these schemes.

There has been a significant amount of misinformation in relation to the Loan Charge, which has caused confusion and anxiety among those affected. However, those affected by the charge have also raised concerns which you will have heard and which the Government has sought to address.

In particular, I wrote to all colleagues on 18 July 2019 to provide an update on new measures to address concerns about the Loan Charge. These measures reflected extensive discussions with professional bodies, independent experts, the official Opposition and colleagues across the House, including members of the Loan Charge All-Party Parliamentary Group. They included confirmation that HMRC will exercise additional flexibility for individuals settling under the published terms who are in genuine hardship.

In addition, HMRC has confirmed that they will not force anyone to sell their main home to pay their debts, and that there is no maximum period over which payment can be made. They also announced simplified payment arrangements for those settling under the published terms. Those settling with income below £50,000 who are no longer involved in tax avoidance may have up to 5 years to pay without providing detailed supporting information, with up to 7 years for those with income below £30,000.

Independent Review of the Loan Charge

Nonetheless, the Government recognises that concerns persist about the Loan Charge.

The Chancellor of the Exchequer has therefore commissioned an independent review to consider the impact of the Loan Charge, focusing on individuals who entered directly into these schemes.

I am delighted that Sir Amyas Morse has agreed to undertake this independent review. As the Comptroller and Auditor General and Chief Executive of the National Audit Office between 2009 and 2019, Sir Amyas is highly respected across the House, and thus well suited to scrutinise this important subject fairly and independently.

The Review will report and provide recommendations to the Chancellor and me by mid-November 2019 so that any individuals affected can have certainty about their next steps in advance of the current 31 January 2020 deadline for individuals to file a 2018-19 Self Assessment return and pay the Loan Charge.

Sir Amyas will specifically consider:

• Whether the Loan Charge, as it applies to individuals who have directly entered into disguised remuneration schemes, is an appropriate response to the tax avoidance behaviour in question; and

• Whether changes announced by the Government in advance of, and since, the Loan Charge came into effect address any legitimate concerns that have been raised about the impact on individuals, including affordability for those affected.

In considering its recommendations, the Review will take into account the impact on wider taxpayer fairness and HMRC’s ability to tackle tax avoidance effectively in the future.

I would be grateful if you could make clear to any constituents raising the subject that, while the Review is under way, the Loan Charge remains in force in line with current legislation.

Individuals should continue to prepare to file a 2018-19 Self Assessment return and pay the Loan Charge by 31 January 2020. However, we do not know what Sir Amyas will recommend and I recognise that naturally some individuals may have concerns about forthcoming deadlines ahead of the Review’s conclusion.

As a result, I can confirm that I have agreed with HMRC that those in the process of settling will be able to pause and wait for the outcome of the Review before deciding whether to proceed. However, individuals who are subject to the Loan Charge but who have not yet settled should still submit an information return to HMRC setting out their loan balance by 30 September 2019.

20 Comments

Hey that’s generous. For retrospective taxation on earnings where the taxpayers took advice from accountants based on legal judgements. Come of it. The Conservative Party is the party of the HMRC which has been reprogrammed to maximise takings instead of pay the right tax.

It’s unclear why these schemes weren’t picked up by HMRC at the time they were in operation. Equivalent loans from limited companies to Directors have clear and precise rules, so why weren’t these rules also applied to trusts? It all smacks of HMRC lassooing a horse that has already bolted, when it previously left the stable door wide open.

As 99.8 % of UK citizens are not involved with such schemes they are not really relevant to the problems everyone faces today. I would be more impressed were you doing something to correct the disparity between how much banking institutions pay in interest for what we deposit with them and what they charge to borrow money. I specifically have in mind credit card interest and the obscenity of the payday loan companies. Start getting excited about this and I will pay attention.

Abolish IR35, it’s a complete nonsense that genuine freelancers have to pay to work far from home out of taxed money. Travel and hotels should be tax free in the same way they would be if you worked for a big consultancy. Why should big consultancies get this massive tax advantage over small one or two person outfits?

The political class have demonised the whole freelance sector, they don’t want them to work through umbrellas, and they don’t want personal service companies either. How exactly do they want freelancers to structure their tax affairs?

You are maybe being diplomatic JR, but these schemes were not avoidance, which is legal, they were tax evasion dressed up as avoidance, which is illegal.

No normal sensible person would take a repayable loan in exchange for a salary, so they understood the ‘loan’ was never to be repaid. That alone should have set the alarm bells ringing. The ‘loans’ could have been described as ‘gifts’, but then they would still have been taxable which defeated the whole object of the scam.

These contractors probably also signed a contract saying that they alone were responsible for the taxes (and any costs) due in the event of a successful tax investigation. The scheme providers and the introducers get off scot free with their very high fees, whether the scheme works or not.

Also the absurd complexity of the system – another tax in itself on top of the taxes. As is the “Making Tax Digital” requirements. We have had complete and utter idiots in charge of the tax system since John Major was chancellor at least Oct 1989. Even Javid does not inspire any confidence. Not that he can do very much anyway given that they have no majority. All thanks to all the Libdim fake Conservative traitors not thank goodness kicked out.

Why? For every £1 that HMRC taken off businesses or people far less than 50% is given back in the form of any public service of value. Even then it is usually not a service the public really wanted. We have the highest taxes for 40+ year and yet we get appalling public services. Cancer survival rates for example are some of the worse for a developed nation. Cut out the rip off and incompetent middle man of the state sector. HMRC knew of these tax schemes and if they were illegal should have acted at the time not many years later.

I must confess, I am conflicted on this. The practice is evidently an illicit way to avoid tax and anyone entering into it must have been aware so were on very dodgy moral ground.

However it was perfectly legal and chasing practitioners retrospectively after the law has changed is wrong. I have sympathy with HMRC pursuing companies who encouraged their employees to participate in schemes such as this in order to reduce their NI liabilities and potentially pay their employees less. But again pursuit of miscreants from before a law was changed is not right. It is more Marxist than John MacDonnell

All workers should be treated the same – it is artificial that we have ’employment statuses’ that HMRC gave up trying to define and instead try to determine status by analogy (“We think a plumber is self-employed, so to assess your status we compare your way of working to a plumber”). Why should employment be taxed more heavily than other ways of working?

And no, the answer is not to move everyone to the worst case level of tax.

If we had sensible levels of tax then people would have less incentive to try to avoid it.

Labour also leaving open the option of abolishing private schools altogether. With Labour chairman Ian Lavery backing calls for an end to the independent schooling system, it notes that “some campaigners have also called for the…the redistribution of private schools’ assets across other educational institutions.” From the Telegraph today.

More thefts proposed then perhaps – if these economic and educational vandals and Maxists ever got anywhere near to power? The evil politics of envy from these bitter, deluded vandals on full display.

This is very good to hear. It starts to give some positive thoughts for this new government that it is prepared to think again on draconian legislation from the previous high tax government. The taxing of interest on rental property also needs urgent attention as this has, as expected, impacted the rental housing market. Landlords did indeed start to unload stock into the sale market. The rental market was struggling enough.

Expecting people to pay tax on earnings is not ‘draconian’. The level of tax may be draconian, but enforcement of the disguised earnings legislation is not. It’s to level the playing field for all taxpayers.

This is the first I heard about this scheme, here I believe it is clearly merely a tax avoidance scheme, but unless the loanee requested it the onus should be on the originator of the loan to pay missing taxes.

Pursuing Tax Payers retrospectively is clearly wrong .Imposing massive interest charges and penalties on those who had been asking HMRC for guidance years ago merely compounds the problem !
Pursuing those who advised on this course of action is clearly a fairer option!

About John Redwood

John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.